May 18, 2002

Analyst Coverage of Small Cap Companies Continues to Erode.

One out of every ten stocks that had sell-side analyst coverage last August has since lost this market support! And more than three quarters of these stocks have been small-caps, with market caps of under $100 million!

These conclusions are based on a series of studies of aggregate analyst coverage, based on data supplied by MultexNet. The research was first carried out by JM Dutton analyst Robert Davis as of August 23, 2001. Subsequently updated as of December 24th of last year, it has again been updated as of May 10, 2002.

· On August 23, 2001 when our research study was first carried out, 4,763 stocks had ?sell-side? analyst coverage from brokerage or independent firms. At that time, analysts at these firms had recently issued a total of 28,121 earnings estimates for these stocks, resulting in an average of 5.9 earnings estimates for each stock covered.

· A significant decline in research coverage has taken place since then. As of May 10, 2002 only 4,361 stocks had research coverage - 402 stocks (or 9.2% of those stocks previously covered) had coverage terminated during this eight month period.

· This confirms the trend that we saw emerging at the end of last year. As of December 24, only 4,501 stocks had research coverage - 262 stocks (5.5%) lost coverage during that interim four months period.

· This decline has been most severe for those companies below $100 million market cap, trading on the AMEX, NASDAQ and Bulletin Board markets. Of the 402 stocks that have lost all research coverage, 79% of them, or 317, have market caps below $100 million.

· Only the American Stock Exchange has seen a gain in the number of stocks with analyst coverage. Of the 140 stocks that have lost coverage since the end of December, 120 are on NASDAQ and another 20 are listed on the NYSE. The AMEX gained three, while the OTCBB lost commensurately.

This certainly represents a serious decline in the amount of information available to investors, especially with respect to small-caps. The following table provides the decline of analyst coverage by market capitalization.

It is still not clear what specific forces are behind this trend, although it appears likely that it is, at least in part, the result of the business economics of Wall Street.

Small cap companies contribute less trading volume, and thus generate smaller amounts of commission revenues for brokerage firms. Similarly, they also do not require the same level of investment banking services as do larger-caps, thus generating less investment banking fees. The recent recession and slowdown in Wall Street has led both to a reduction in trading volume and in investment banking activities. As a result, their level of coverage has declined.

There is also a possibility that Wall Street firms are responding to the concerns about sell-side analyst biases, which began to emerge last summer, by quietly reducing their coverage of riskier small-cap stocks.